Why it matters:
- An emerging ecosystem of digital platforms from startups to big tech is creating new opportunities for small businesses to launch, grow and sell.
- More than 50 startups described as Amazon marketplace aggregators or accelerators have sprung up over the past three years, opening up new sales channels for entrepreneurs.
- Search and social media power players Google and Facebook are adding new ways for small businesses to sell directly on their sites, while marketplaces like eBay, Etsy and Walmart.com are looking to grow by adding more small business vendors.
For the past decade, direct-to-consumer selling was viewed as the surest path to e-commerce success.
That was the game plan startups like Away, Casper, Warby Parker, and Dollar Shave Club used to catapult themselves to e-commerce fame and fortune.
Now, the big money in the retail space is betting on direct-to-marketplace as the strategy that will drive the most growth in the coming decade.
Tech investors that previously helped launch direct-to-consumer brands are acquiring marketplace vendors and creating new ways to turn a marketplace presence into exponential growth.
The growing number of multi-million-dollar third-party sellers on Amazon’s Marketplace — many of them one-or-two person operations — has made investors take notice. Third-party sellers are the biggest part of Amazon’s retail business, accounting for nearly 60% of its sales in 2020. This has created a gold-rush-style stampede to acquire successful Amazon marketplace sellers.
More than 50 startups described as Amazon marketplace aggregators or accelerators have launched over the past three years. Between April 2020 and April 2021, they raised $3.5 billion in funding, the bulk of that — $2.5 billion — closing in the first four months of this year, according to Marketplace Pulse.
‘Digital economies and platforms are a giant entrepreneur creation machine’
This has created new opportunities for entrepreneurs to launch, grow and sell their businesses.
“How amazing to be a small business today, because all these digital economies and platforms are basically a giant entrepreneur creation machine,” Sebastian Rymarz, co-founder and CEO of Heyday, one of the firms buying and growing Amazon Marketplace brands, told CO—.
“If you are a digital entrepreneur, there’s never been a better setting, or a better time, to start a business,” he said.
There’s also never been a time when so many tech, social media and e-commerce marketplace companies are courting small businesses and trying to draw them to their platforms.
Search and social media power players Google and Facebook are adding new ways for small businesses to sell directly on their platforms, while marketplaces like eBay, Etsy and Walmart.com are looking to grow by adding more small business vendors.
EBay has a small business accelerator program with discounts, resources and a “seller school,” and has added tools such as video capabilities to its mobile app.
In the U.S., the number of small businesses on eBay grew 34%. And sales by eBay-enabled small businesses rose 38% during the six months following the start of the pandemic in March 2020.
Google last year eliminated fees for product listings and added features to make it easier for consumers to buy directly from its search and shopping pages.
This month it announced a partnership with Shopify to enable the e-commerce platform’s 1.7 million merchants to link products to Google pages.
Over the past year, Facebook has unveiled a number of initiatives designed to make it easier for small businesses to use Facebook and its Instagram and WhatsApp spinoffs as e-commerce sales platforms.
[Read here for a complete guide to selling online.]
The ‘long-tail’ strategy: tapping small businesses to sell thousands of items
Marketplaces, and social media and search platforms that are looking to become more like marketplaces, want to add small business vendors to expand their “long tail,” Brad Eckhart, a partner in Ohio-based Columbus Consulting, a retail and technology-focused consulting firm, told CO—.
In the past, Eckhart said, stores typically made 80% of their revenue via 20% of the products they carried. “You were always trying to narrow the assortment down to get the best out of your buck because you had to invest in the inventory,” he said.
But marketplaces can carry thousands of items from small business sellers without owning the inventory. “This is how Amazon was successful with their third-party vendors, because they can succeed with this long tail, selling items that normally they would never have carried,” Eckhart said.
Eckhart recently completed a nine-month program in business analytics at Harvard where he studied marketplaces.
How amazing to be a small business today, because all these digital economies and platforms are basically a giant entrepreneur creation machine.
Sebastian Rymarz, co-founder and CEO, Heyday
The niche marketplace opportunity: a (low-cost) selling platform with a built-in audience
He became particularly interested in niche marketplaces that can connect buyers with specific categories of vendors, such as Market Wagon, an online farmers market for local farms and artisanal food producers.
“If I were a business and I had a product to sell, I think what I would do is search for existing marketplaces that are niche marketplaces,” Eckhart said. Marketplaces, he said, give businesses the ability to start selling online without having to invest in a website or pay for advertising to drive traffic to the site.
“I’m getting on a site that already has traffic associated with it and already has a number of vendors,” he said. “The more sellers are on the site, the more traffic it’s going to develop.”
As the largest marketplace, Amazon is often the first one small business sellers think of, but also can be the most expensive in terms of fees, and the platform can be the hardest to stand out in a crowded field of sellers.
“Amazon is the absolute 800-pound player. That’s where most of your customers are going to search first. But I wouldn’t put all of my eggs in that one basket,” David Nour, CEO of The Nour Group, a strategic relationship advisory and coaching firm, told CO—.
Small businesses, Nour said, should use all available channels – marketplaces, social commerce, direct-to-consumer platforms – and use multiple marketplaces rather than picking just one.
“You create a multiplier effect and meet potential customers at the time and place of their choosing,” Nour said. “I’d also explore channel partners where you have a presence within significantly larger ecosystems,” he said.
“Small business owners can and should also much more aggressively use affiliate links, emerging influencers in their space, and sales funnels through email and social marketing,” Nour said.
[See this quick guide to affiliate marketing.]
‘Headless checkout:’ a potential ‘game changer’ for small businesses
These marketplaces and platforms create a complex space with a diverse mix of players in the e-commerce sphere — “and more being created every day,” said Domm Holland, co-founder of Fast, a Silicon Valley firm that has created one-click checkout technology. The site lets consumers buy from any site on the internet with a clickable button that stores their payment and shipping information.
“With Shopify and Facebook we’ve seen the rise of the solo entrepreneur who can set up a store quickly and start selling something,” Holland said.
Solutions like Fast, and other “headless checkout” options that enable sales without a typical e-commerce infrastructure, have the potential to turn anything on the internet – blogs, news articles, influencer posts – into a marketplace.
“The most defining part of commerce this year isn’t Facebook and Google and TikTok adding the ability for people to list their products,” Holland said. “All of that is just more players getting into the same space.” Rather, he said, the game changer will be headless checkout.
The tech race to create new ways to sell makes this a prime time to launch new brands and businesses, Heyday’s Rymarz said.
Heyday, which began acquiring Amazon Marketplace sellers last year, grew revenue to $100 million in its first five months, and expects to top $200 million this year.
There is so much potential for growth in the marketplace economy, Rymarz said, that there can be many winners.
“These types of opportunities are like once in a decade,” he said.
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